From ‘May I help you’ to ‘Help yourself’

Some 20 years or so down the road, Nikhil Bijlani sees bank branches transformed into something along the lines of the grocery store model, with self-service checkout stations.

The conventional branch will become more of an interactive kiosk, where customers will be able to cash their own checks and conduct other transactions, he foresees.

“It will be like the grocery stores today that have self-service stations along with some checkout staff,” said Bijlani, e-operations manager for Capital Bank of Rockville.

Some banks, including giant JPMorgan Chase, already have self-service kiosks in branches. In 2011, JPMorgan rolled out on a pilot basis kiosks that do more than an ATM, such as cash checks, and also have instant debit card-issuing machines.

Capital One Bank has opened “cafés” in several cities, where employees sell coffee and help customers open online accounts and download apps for their mobile devices.

The changes are influenced by the recent higher-than-average growth of banks such as Capital One 360 and Discover Bank that operate mostly online, but there are other factors, bankers say.

It is hard to determine how much of the growth has occurred in a specific state, as the Federal Deposit Insurance Corp. tracks where the money goes, not where it’s coming from, said Richard Barrington, senior financial analyst for MoneyRates.com. Online bank deposits are counted where those banks’ offices are, which are centralized.

Capital One 360 does not provide state-by-state breakdowns of its customers’ deposits, spokeswoman Amanda Landers said. A spokesman for online institution Discover Bank said he was checking on how many customer deposits were from Maryland residents and businesses.

As of June 30, Capital One 360 was the largest online bank nationally with $86.2 billion in deposits, according to the FDIC.

Bert Ely, a banking analyst and owner of Ely & Co. in Alexandria, Va., doesn’t see online banks making too many more inroads into the market share of conventional banks, noting that their share has slowed in the past couple of years.

“There will always be some element of online-only banks, but I don’t think that model will be a significant factor,” Ely said.

Branches not dead

While the conventional bank branch will see changes, there will still be a need for branches in at least the near future, he said.

“The demise of branches has been predicted for years, but that hasn’t happened, yet,” Ely said. “Branches still meet the needs of certain customers, especially small businesses that need cash and have checks to deposit. ... Then, some individual customers don’t like to use ATMs or bank online.”

Many ATMs are doing more than they used to, he said.

“I think you will see more automation in branches,” Ely said. “But it will be a very gradual change.”

Members of the Maryland Bankers Association have offered online banking products for many years, CEO Kathleen Murphy said.

“They are committed to giving customers options, many of whom want the branch experience as well as the access to their accounts through technology,” she said. “Online banking doesn’t come at the expense of branch banking. Banks of all sizes serve up options to meet people’s varied banking needs.”

Barrington agreed that the branch model is not dead in the water. He foresees more of a hybrid branch model, with conventional banks building online capabilities and offering tiered choices.

“I think customers will be given an option. They will be able to get higher savings account rates and lower fees for banking electronically, or they can pay for branch service in lower rates and higher fees,” Barrington said. “Overall, I think that is positive. Choice is good for consumers.”

Then there is the generational factor, with younger people generally being more comfortable with online banking, he said.

“This is a trend that will take years,” Barrington said of the hybrid branch.

As far as the self-service branch, he sees that as a limited model, because banks will still have to staff the building and customers still have to drive to a bank. Branches will thin out considerably in coming years, but there are still services such as financial consulting and lending that need some face-to-face interaction, he said.

“It could be more of an interim phase,” Barrington said of the kiosks. “I don’t think that is really the answer.”

kshay@gazette.net

EagleBank outpaces even fast-growing online banks

Two of the three largest online banks nationally have grown deposits faster in the past three years than the largest conventional national banks. EagleBank in Bethesda is the only one of Maryland’s three biggest banks in deposits to have grown faster than even online banks.

Institution Headquarters Type June 2012* June 2009* Change

EagleBank MD Conventional $2.52 $1.26 +100%

Ally Bank UT Online $44.12 $25.42 +73.6%

Discover Bank DE Online $41.76 $29.10 +43.5%

Citibank SD Conventional $950.5 $756.0 +25.7%

Columbia Bank MD Conventional $1.52 $1.21 +25.6%

JPMorgan Chase OH Conventional $1,163.0 $974.5 +19.3%

Capital One 360** VA Online $86.17 $74.84 +15.1%

Sandy Spring Bank MD Conventional $2.86 $2.65 +7.9%

Bank of America NC Conventional $1,062.3 $1,008.4 +5.3%

Maryland $120.8 $108.2 +11.7%

U.S. $8,947.2 $7,559.6 +18.4%

* in billions of dollars

** formerly ING Bank

The largest online banks have not added any branches in the last three years, while most of the largest conventional banks in Maryland and nationally have.

Offices

2012 2009 Change

Columbia Bank 39 29 +34.5%

EagleBank 17 14 +21.4%

Sandy Spring Bank 50 43 +16.3%

JPMorgan Chase Bank 5,636 5,261 +7.1%

Citibank 1,056 1,043 +1.2%

Capital One 360** 1 1 0%

Ally Bank 2 2 0%

Discover Bank 2 2 0%

Bank of America 5,692 6,216 -8.4%

Maryland 1,752 1,843 -4.9%

U.S. 97,337 99,550 -2.2%

Source: Federal Deposit Insurance Corp.

The growth of financial institutions that primarily interact with customers online is helping drive major changes in the multitrillion-dollar industry, bankers and analysts say.

For one thing, it’s forcing conventional banks to invest more in such technology to compete.

“It keeps us on our toes,” Nikhil Bijlani, e-operations manager for Capital Bank, said in a third-floor conference room at the institution’s headquarters overlooking the downtown Rockville Metro station.

Capital Bank is among a handful of Maryland institutions that have grown deposits and assets faster in the past three years than the nation’s three largest online banks. Deposits at Capital Bank have shot up 104 percent to more than $300 million since the Great Recession ended in mid-2009, faster than the growth at online banks Capital One 360, Ally and Discover.

Ally and Discover, in turn, have grown faster than the nation’s largest conventional banks, with 74 percent growth to $44 billion and 44 percent growth to $42 billion, respectively. Capital One 360 — the former online institution ING Direct — is larger with $86 billion in deposits as of June, but hasn’t been growing as fast more recently.

The nation’s three largest banks in deposits — JPMorgan Chase, Bank of America and Citibank — have three-year deposit growth rates of less than 26 percent, while the national average is 18 percent.

The same technology that Capital One 360 and others have used to grow is helping smaller conventional banks compete, said Bijlani, who has worked in the field for more than a decade at banks such as PNC and the former HarVest Bank of Maryland. But it’s not so much the online banks sparking those changes — it’s the customers who see what both other conventional and online banks offer, and push their banks to keep pace, he said.

“Technology is the great equalizer for banks our size,” Bijlani said. “We level the playing field with the big banks through technology.”

Technology with ‘hand holding’

Capital Bank, which has two branches in Maryland and one in Washington, D.C., has seen online banking transactions and users more than double in the past two years, Bijlani said. The bank has not only upgraded its online banking capabilities but rolled out more technological advances to help attract and retain customers as far away as California and Israel.

Many small-business customers use check image scanners and can bank remotely, Bijlani said. The bank also upgrades its own internal technology, such as its videoconferencing system in conference rooms, he said.

Capital One Bank of McLean, Va., the fourth-biggest bank in Maryland with $10.4 billion in deposits as of June, according to the Federal Deposit Insurance Corp., also has seen an increase in online banking in recent years, said Amanda Landers, a bank spokeswoman. Customers can access accounts online and also through mobile sources such as smartphones, she said.

Even before purchasing ING, Capital One Bank had a significant online banking system in place and began offering online accounts 15 years ago, Landers said.

“We offered online banking products for customers who wanted competitive interest rates, no fees and no minimums, and didn’t feel the need for a branch-banking experience,” she said.

Capital Bank is developing a mobile banking service, Bijlani said.

“As people get more comfortable with banking online and on their phones, we will offer those products and services,” he said.

More credit unions are offering online and mobile banking. Montgomery County Employees Federal Credit Union, which opened a 20,000-square-foot headquarters in Germantown in 2008 with many technological upgrades, offers not only online and mobile banking but banking by text, CEO James Norris III said.

The credit union continues to roll out new technology for its roughly 14,000 members, such as an app for the iPad, he said. While online banking has increased among members, “they will still have questions, and we have employees here to answer them,” Norris said.

What Capital Bank provides that the out-of-state remote banks largely don’t is personal customer service, Bijlani said. For instance, he recently went to the home of a North Potomac customer to help her access the system.

“People are surprised that bankers make house calls,” Bijlani said. “But that is something we provide. Technology is only as good as the people who understand it. ... We offer technology with a fair amount of hand holding.”

Higher savings rates

Internet banks held the top four spots in a recent national list of the highest interest rates for savings and money market accounts compiled by MoneyRates.com, a Foster City, Calif., personal finance website. Such banks have less overhead and can pass savings to customers in the form of higher rates and lower fees, said Richard Barrington, senior financial analyst for MoneyRates.com.

“They don’t have to support a massive branch system,” he said. “They operate with less physical overhead and personnel.”

In the fourth quarter, the average savings account rate at online banks was 0.60 percent, significantly higher than the average at conventional banks of 0.11 percent, according to MoneyRates.com. The average online money market account rate was 0.65 percent, also much higher than the conventional money market average account rate of 0.17 percent.

Ally Bank of Midvale, Utah, had the highest savings account rate in the fourth quarter at 0.95 percent, while Discover Bank of Delaware was fifth at 0.80 percent and the former ING Direct was seventh at 0.75 percent. Capital One Bank offered among the highest rates among conventional banks, coming in ninth at 0.53 percent.

First Mariner Bank of Baltimore had one of the highest money market average rates for conventional banks at 0.50 percent.

Capital One not only rated high in the MoneyRates survey but was named the best bank for standalone checking accounts by Money Magazine last fall. Its High Yield Free Checking account offers a rate that is five times the national average, and the bank offers two rewards checking accounts “at a time when a lot of banks have eliminated rewards,” Landers said.

Branches in decline

The number of branches in Maryland dropped by 5 percent from 2009 to 2012 to some 1,750, according to the FDIC. The trend has been slower nationally, with a 2 percent decline.

Bank of America, the largest institution in Maryland with $24 billion in deposits as of June, has seen branches decline by 8 percent in the past three years nationally to about 5,700 and by 5 percent in Maryland to 185.

The largest online banks have not added any branches in the last three years, while the three largest conventional institutions based in Maryland — Sandy Spring Bank of Olney, EagleBank of Bethesda and Columbia Bank of Columbia — have. Among those three, EagleBank has seen the most growth, doubling deposits in the past three years to $2.5 billion.

Some of the growth was through EagleBank buying OBA Bank’s lone D.C. branch in 2011, but most of it was organic. EagleBank agreed to buy Alliance Bankshares of Chantilly, Va., in 2011 but that deal fell through.

EagleBank’s growth has been aided by larger banks turning down small businesses for loans, Ronald D. Paul, chairman and CEO of the institution, said in a recent blog.

“We significantly increased our small business lending in 2012,” Paul wrote. “During the year, EagleBank made over $185 million in new loans to area small businesses. Retailers, restaurants, contractors, consultants and professionals all benefitted from having a community bank that is willing to make loans to small businesses, understands the business model and knows how to underwrite it.”

Fewer bank jobs

As the number of branches decline, bank jobs are dwindling and changing. The number of commercial bank employees nationally fell by 1.4 percent in the past year to about 1.3 million, according to federal labor figures. The sector has seen 23,500 in job losses in the past five years.

Capital Bank has more than doubled its workforce in the past three years to 91, with some of that growth coming through acquisitions such as last year’s purchase of the assets of American Eagle Savings Bank in Boothwyn, Pa. EagleBank has increased its workforce by two-thirds in the past three years. Other banks have seen slower employment growth, and some, including Bank of America, have seen slight declines.

Meanwhile, online banks Discover and Ally have boosted employment by 87 percent and 50 percent, respectively, in the past three years.

“You are likely to see more employment in call centers, rather than in branches,” he said. “Unfortunately, that means fewer overall jobs. One person can do more in a call center, where there are calls coming from all over, than in a local branch.

“I think you will see a steady downward slope [in jobs], but it will be a long, sustained slope,” Barrington said.